The Potential for Planning an Industrial Cluster in Barre, Vermont: A Case of 'Hard-Rock' Resistance in the Granite Industry - PDF

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Planning Practice & Research, Vol. 13, No.3, pp , 1998 ~ CARFAX PRACTICE FORUM The Potential for Planning an Industrial Cluster in Barre, Vermont: A Case of 'Hard-Rock' Resistance in the Granite
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Planning Practice & Research, Vol. 13, No.3, pp , 1998 ~ CARFAX PRACTICE FORUM The Potential for Planning an Industrial Cluster in Barre, Vermont: A Case of 'Hard-Rock' Resistance in the Granite Industry ZENIA KOTVAL & JOHN MULLIN Introduction Throughout the world, there has been considerable interest among economic planners concerning the creation of industrial clusters (Harrison. 1992, 1994). Efforts to stimulate, nurture and reinforce such clusters can be found in virtually all of the European nations, as well as in Japan, Korea, China and others (Malecki, 199]; Best, ]990). These efforts range from reinforcing the strengths of promising areas to stimulating the creation of totajly new technologies (Castells & Hall, ]99/i ;. The identification of such clustering oppon:.mities has become a critical element of national, state, regional and local planning activities. While there are many researchers who have focused on this topic, the Harvard Business School's Michael Porter has, arguably, been among the most effective in bringing the idea to working planners in both Europe and the US. His books and articles are widely read and analysed on both sides of the At]antic and his ideas have become increasingly commonplace in mainstream planning for economic development. Of particular note is his work The Competitive Advantage of Nations (Porter, 1990). It remains to be seen, however. what happens when one attempts to implement Porter's principles through local planning. A glimpse at what happened in Barre, Vermont between September 1994 and February ] 995' could help answer that question. From September ]994, the authors were part of a team of scholars and practising planners, commissioned by the mayor and the city administration to conceptualise and prepare an e~onomic development plan for the city. We worked with more than ] 00 local citizens, business leaders, community leaders and trade group representatives, to develop a plan that was largely based upon Porter's concepts. This paper is a summary and analysis of the team's efforts. While one case study cannot conclusively determine anything, we hope to help clarify issues for similar economic development planning in other areas, and to contribute to research into the effecliveness of the Porter approach. The Concept of Industrial Clustering The notion of places, regions and even nations acquiring a comparative advantage due to certain industrial sectors clustering together is not new. The first theorist to examine comparative advantage was the eighteenth-century Br!tish economist David Ricardo. who studied the interrelations between growing capitalist markets, trade and regional or national patterns of econ- Zenia KONal. DeparrmenI of Urban and Regional Planning. Michigan Stale Unil ersity. East Lansing. MI USA. John Mullin Department of Landscape /98/ $ Carfax Publ ishing LId 311 Zenia K orval & John Mullin omic specialisation. In his conception, comparative advantage renects the distribution of natural resources, climate, labour costs and differences in technology embodied in the production process. By the nineteenth century, neoclassical theory, emphasising the nature of demand and marginal costs and benefits, overshadowed classical theories centred around the labour theory of value. The neoclassical theory of comparative advantage includes more than one factor of production, i.e. capital as well as labour, and allows for the incorporali.on of demand, which Ricardo ignored (Walsh & Gram, 1980). Industrial clusters have been identified In Europe for generations-machining steel in Sheffield, textiles around Prato in Italy, chemicals along the Rhine, automobiles in the southwest German state of Baden- Wurtlemberg, financial services in London and fashion design in Paris and Milan. The most notable clusters in the US arc the electronics industry in the Route 128 area around Boston and the computer industry in California's Silicon Valley. Industrial clusters are emerging around medical devices (Minneapolis), biotechnology (San Diego. Worcester, Massachusetts), semiconductors (Austin) and software (SeattlclPortland). Over the past decade, industrial policy experts have come to realise that a positive local environment is essential in developing global competitiveness. The interaction of peers, competitors, local universities and the local government is crucial for the long-tern1 success of a firm. Scholars such as Annallee Saxenian (1994) agree that regions offcr :l competitive advantage to certain industrial clusters even as production and markets become increasingly global in nature. That proximity promotes repeated interaction and the mutual trust needed \0 sustain collaboration and enhance technological advancement. She argues, however, that spatial clustering alone docs not create mutually beneficial interdependencies. There is a need for the complex of institutional and social relationships that connect the produt:ers within a region's fragmented industrial structure. Bennett Harrison. in supporting the theory of clusters, argues that agglomer:llions of small- and medium-sized companies alone will no! create significant success. There is J need for bigger firms to help upgrade the technical capabilitie1 of their smaller suppliers. After analysing components of effective in dustrial clusters in the US and abroad, Michae Porter developed the 'Diamond' model foi competitive industrial clusters. He identifiee four important aspects of economic activity tha are essential to a strong industrial base. The first relates to 'Factor Conditions'. It is here that the role of government and local institu tions makes a difference. In order for loca' industry to succeed it must have the cooper ation of local government. Government mus: provide the water, sewer, highway and telecom munications systems that enable companies te compete. Government must also playa key role in training the workforce. For example, the plastics cluster in Fitchburg/Leominster. Mas sachusells has used the services of the Univer sity. of Massachusells (Amherst) for assistance in dealing with chemical compounds (poly mers) and the University of MassachusetH (Lowell) for assistance on the shop noor. The second clement of Porter's model cen tres on 'Demand Conditions'. These relate to growing national (or local, but not inler national) demand and market for products Porter's model requires more than increasing output based on having the cheapest product; i' requires producers and buyers \0 work togethel \0 insure that price. quality and efficiencies are working cooperatively within a community When this occurs. there is a prospect for ar ever-increasing spirit of innovation thro'ughou' the industry. The loc::11 plastics industry ir Northem Worcester County (MAj, for example has caught this spirit and moved from chea~ plastic forks and spoons to high-tech 'sur screening' night goggles ror helicopter pilot1 operating in desert conditions. The third clement centres on 'Related ane Supporting Industries'. When foreign or inter national suppliers have been globally tested they will incvitably help domeslic end-produce: companies improve their products and scrvices Typically. they will have prospered in the world market hy upgrading and improving pro duction techniques. processes and outputs They can then bring their entrepreneurial cui lure to the domestic firms. where a highe: degree of L'ompetitivcness can emerge througf 312 3]3 Planning an Industrial Cluster mutually desired innovation, the transfer of information and a close working relationship. Porter maintains that there is a decided advantage when the suppliers and end producers are located in the same area: new ideas are tested more easily, informal learning results and news of the marketplace is shared. The integrating factor in Porter's Diamond is the fourth and final element: 'Firm Strategy, Structure and Rivalry'. Most companies do not define their strategies in a comprehensive manner. National industry leaders more commonly develop strategic plans based on the best analysis of world markets and trends, and the strengths and weaknesses of their competition. Small companies do not generally possess the economies of scale necessary to undertake such comprehensive strategic plans, however. Among smaller firms. strategic planning is often informal, inductive, reactive and too frequently lives only in the head of the chief executive officer. Company structure is also an important component of Porter's fourth element. Experience shows that sole proprietorships with local roots tend to stay in their present locations even if market advantages can be found elsewhere. However, family-owned businesses change over time and the commitment to place diminishes as older generations retire. For planners and local officials interested in attracting and retaining businesses. corporate structure can be an important indicator of corporate stability. If lines of succession are unclear, if mergers are in the wind, or if the existing location's attractiveness wanes, then a company would appear to be in danger of relocating. When rivalry among competitors, suppliers and customers exists there is continual improvement in product quality and an upgrading of labour. This is demonstrated in the more than 20 paper companies within 10 miles of Holyoke, Massachusetts ('The Paper City'), the 30 plastics companies within 10 miles of Leominster, Massachusetts ('The Pioneer Plastics City') and the hundreds of high-technology companies within ]0 miles of Route 128 (' America's Technology Highway'). Local rivalry with mutual cooperation can result in an environment that has a strong competitive advantage, where change is viewed as an opportunity. Organisations can help foster this spirit in the presence of company rivalries. A government 'Iabcratory' created such a spirit in the case of North Carolina's Research Triangle Park (Lugar & Goldstein, 1992). The presence of a strong university can foster the same spirit. The spin-off companies from Stanford, Duke, MTT and the University of Texas, among others, provide examples of how this can happen (Dertouzos el ai., 1989). A single university department can also help to stimulate this spirit, as in the case of the University of Massachusetts Polymer Studies Department. Another organisational structure, perhaps less widely recognised, is an industry network. Networks in the paper, plastics and granite industries have been quite effective. On the other hand, these networks can become overly protective and may focus on 'fighting the last war' rather than on fostering a spirit of healthy competition in the presence of industrial change. Industrial clustering does not occur spontaneously. There must be companies within an industry that compete against each other, sophisticated suppliers that co-exist with local firms, companies whose strategic plans define their competition in a global framework, and a desire for improvement. Barre, Vermont, The Granite Capital The City of Barre, population 9482, is located in central Vermont between Montpelier and White River Junction. approximately] 30 miles from Montreal, Canada. and 200 miles from Boston. Massachusetts (see Figure ]). First settled in 1769, it quickly became known for its vast quantities of granite. By the late nineteenth century, Barre had become known as the granite capital of the world. Although the claim is somewhat of an overstatement. the city sits on one of the most extensive granite deposits on the globe. Geologists estimate that the deposit is four miles long, two miles wide and ten miles deep. The granite industry is the largest industrial sector in Barre. There are approximately 60 granite companies located in the Barre area. They employ approximately 1000 workers with an additional 400 workers supplying transportation, machinery or equipment repair services. Zenia Kotval & John Mullin 1-91 FIGURE I. The location of Barre. Vermont. The value of the products manufactured in Barre is estimated at approximately SI 00 million per year. Approximately 47%' of this represents the cost of materials, while 53% represents 'value added'. This relatively low percentage of value added reflects a reluctance by companies to invest in high technology or to take efforts to improve worker productivity. The workforce is predominantly blue collar but very well paid by Vermont standards. Indeed, among manufacturing occupations. only the ele.ctrical workers in Vermont earn a higher hourly wage. Most of the workers own their own homes. Moreover, Barre has virtually no major crime and contains some of the most spectacular natural resources in the nation. There is little turnover in personnel in the granite industry, and sons have followed fathers into the quarries for generations. Based on citizen surveys and focus sessions. there are no obvious signs of a widespread desire among residents to broaden the city's industrial or occupational base. The State of Barre's Industry Changes in the granite industry are sending signs of foreboding over Barre and its industry. 3]4 ~L i Although Barre's finns have carved out a strong market niche, granite sales are in a gradual decline and new quarries are being developed across the United States. In fact, by tons of rock cut and shipped, quarries in Elberton, Georgia now out-produce those found in Barre. The Barre industry has long speciajised in rough-cut stone and grave markers. Approximately 90-95% of Barre's production is memorials and monuments. There are clear signs that the granite industry as a whole has not adapted to changing market conditions. American builders are increasingly moving away from the use of granite as a buijding materia]; one reason for this may be that the industry has faijed to standardise its cutting procedures like the brick, marble and concrete industries. The industry has also failed to 'add value' to its product. The marble industry has done far more to modernise than the granite industry and could serve as a model. Neither the Rock of Ages Company, the leading granite company in Barre, nor the Barre Granite Association (BGA), has made any noteworthy attempts to add value to their product. The Rock of Ages Company is the prime example of the industry's shortcomings. Rock of Ages has six quarries in Barre alone and many more across the Northeast. Because the company is based in nearby New Hampshire, it functions as an absentee owner. In its constant quest to hold down costs and compete in the industry, Rock of Ages' business strategy makes it more like a multinational corporation than a home-grown finn. The company chooses its rock-cutting and selling sites, in part, with an eye toward achieving economies of scale. The company's freedom to choose where it cuts rock means that Rock of Ages does not need Barre as much as Barre needs Rock of Ages. To date, the company has served as a 'good citizen'. It participates in community events. is an active member of the BGA. and operates the Barre Granite Industries' Visitors' Ce:nre. This s.upplements its inordinate impact on the local economy. A key factor that could influence the furore of Barre's granite industry is increasing international competition. Under the World Trade Organisation (WTO), all tariffs on granite will Planning an Industrial Cluster eventually be removed. Already, granite from as far away as India is quarried, cut, finished, polished and shipped to the US at a lower cost than a similar product can be supplied by Barre's companies. There are other nations, such as Italy and Spain, that also have a ready supply of the material and low extraction costs. Considering the slipping domestic demand for granite, the powerful position of Rock of Ages within Barre's industry, and growing international competition, Barre's granite industry has cause for concern. This led officials and some industry leaders in Barre to consider how industrial clustering could help. The Potential for Planning an Industrial Cluster in Barre From the start of this project, the mayor and town manager saw the need for change far more dearly than did the granite industry. The local governmental leadership knew that the industry was not growing, wages were flat and Barre's market share was eroding, It clearly needed to stimulate change, but had little experience, in planning for economic development. After looking at many approaches, the leadership felt quite comfortable in using the industrial clustering concept as a means of detennining the state of Barre's industries, identifying weaknesses and providing a focus for potential municipal actions, Tne results are explained below, Although the local government had come to recognise the need for change in its relations with the granite industry, its past record in providing Porter's Factor Conditions was mixed. Its role was primarily as a provider and guarantor of a social safety net for its citizens. In other words, economic planning and assistance were not of primary importance. The city had put together a 'Stone Trades' programme at the high school that regularly prepared 10 workers per year for the industry. but had no initiatives at the more significant university I~vel. (Vermont's universities and colleges do ~ot have a tradition of direct outreach.) After reviewing the impact of their orientation with the consulting team. local government officials came to see that they could play an interventionary role in stimulating growth Zenia Kotval & John Mullin within their industrial base, and create a balance between providing a social safety net and supporting local companies. The shift in attitude was marked by. modest but noteworthy initiatives. Zoning was quickly altered to meet companies' expansion plans, ideas were generated for the establishment of a granite museum in the city, and local officials helped write legislation to require the use of granite in all Vermont public buildings. The shift was also evident in the search for financial assistance. For years the Central Vermont Economic Development Corporation had a small revolving loan fund (RLF) sponsored by the US Economic Development Administration (EDA), but it had gone unnoticed by most Barre officials. After the study was completed, however, the leadership became active in obtaining more resources from the fund. They are also now detcrmined to be active players in the EDArequired Overall Economic Development Programme (OEDP). Local government now at least considers the improvement of the granite business as being within its realm of responsibijities. However, Barre's 'hard-rock' resistance to change is perhaps best illustrated by the unwillingness of the granite industry to provide Porter's second critical element of industrial dusters: meeting the level of demand for product and keeping up with product buyers' increasing sophistication. Barre's granite companies have been slow to innovate. reluctant to market new products, and unwilling to adjust to a changing industry. The skills. tools and market exist for Barre to become a duster where the demands for improved products and greater competition stimulate 'value-added' product development. However, the BGA and the chief executive officers of many granite companies tend to see Barre's primary business as moving rock and cutting grave stones. Suppliers to Ba,rre's granite industry have made little effort to become globally competitive. Employers and business owners were surveyed by the consulting team, and whenasked about the int'iuence of WTO or NAFT A they initially argued. like the industry itself. that these agrcements will hurt Barre. When asked about the int'iuence of the European Union or the need to follow international stan- 316 dards, they argued that those developments arf irrelevant. Porter's capstone point, 'Firm Strategy. Structure and Rivalry', points to another weak spot in Barre's industry: formal planning i rare. Companies'
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